Vardhman Cables India Pvt. Ltd. vs Mahanagar Telephone Nigam Ltd. & ...
2011 Latest Caselaw 4855 Del

*             IN THE HIGH COURT OF DELHI AT NEW DELHI

+                         FAO No.222/2010

%                                                   29th September, 2011

VARDHMAN CABLES INDIA PVT. LTD.                           ...... Appellant
                            Through:              Mr. S. K. Gupta, Advocate
                                                  with Mr. Manish Gupta,
                                                  Advocate
                          VERSUS

MAHANAGAR TELEPHONE NIGAM LTD. & ANR.        ...... Respondents
                         Through: Mr. R.K. Sanghi, Advocate
                                    with Mr. Aditya, Advocate

CORAM:
HON'BLE MR. JUSTICE VALMIKI J.MEHTA

    1.   Whether the Reporters of local papers may be
         allowed to see the judgment?

    2.   To be referred to the Reporter or not?

    3.   Whether the judgment should be reported in the Digest?


VALMIKI J. MEHTA, J (ORAL)

1.            The challenge by means of this first appeal under Section 39

of the Arbitration & Conciliation Act, 1996 is to the impugned order

dated 8.12.2009 passed by the Court below whereby the objections filed

by the appellant under Section 34 of the Act were dismissed.

2.            The facts of the case are that a contract of supply was

entered into between the parties with the appellant as the seller and

the respondent No.1 as the buyer for self supporting PVC drop wire with

fibre glass. The letter of intent was issued in favour of the appellant on

18.7.2001 for supply of 4690 kms of the drop wire.            The appellant


FAO No.222/2010                                                 Page 1 of 6
 accepting the tender furnished a performance bank guarantee dated

22.1.2002 for an amount of Rs.2,69,000/-.        The appellant/petitioner

though had failed to supply the entire quantity of the material, however

it supplied a substantial part of the same after extensions and a total

supply of 3,500 kms out of 4,690 kms was made. When the appellant

failed to supply the balance quantity of 190 kms in spite of extensions

the respondent No.1 terminated the contract and encashed the bank

guarantee.     Disputes and differences arose between the parties

resulting in arbitration proceedings and passing of the Award dated

29.12.2008 by the Arbitrator.

3.           Two issues have been argued before me.           First is with

respect to the denial by the Arbitrator of the claim of the appellant for

the amount of bank guarantee encashed by the respondent No.1. The

second issue is denial of pendente lite interest by the Arbitrator.

4.           A reference to the arbitration proceedings shows that both

the parties were ambivalent in their cases as put up before the

Arbitrator or if I can say so they were quite clearly unaware of what is

the legal position.   This I can say so because the appellant/claimant

claimed refund of the amount of the bank guarantee which was

encahsed by the respondent No.1 without making any allegation that

the respondent No.1 could not retain the amount of bank guarantee

because neither loss was caused and proved as per Section 75 of the

Contract Act, 1872 (hereinafter referred to as 'the Act') and nor was

there any entitlement under Section 74 of the Act, of the respondent

FAO No.222/2010                                                Page 2 of 6
 No.1 to retain the amount of bank guarantee as there was no clause of

liquidated damages entitling retention of such amount because taken

with the fact that no loss was caused. The respondent No.1 also did not

plead a case that the amount of the bank guarantee could be retained

because loss had been caused, which was pleaded and proved, or that

there was a clause of liquidated damages and the amount of bank

guarantee could be retained because loss was caused. I am also pained

to note that during the hearing of the present appeal I really received

no assistance whatsoever from the respective counsel because neither

of them had any pleading of the arbitration proceedings and nor were

the relevant issues argued. I have therefore on my own gone through

the pleadings for the purpose of passing the present judgment.

5.         A reference to the arbitration proceedings show that though

it was not so pleaded by any of the parties, yet, actually the real issue

was whether the amount of bank guarantee could be retained by the

respondent No.1 because loss had been caused in terms of Section 73

of the Act or that because of a clause of liquidated damages taken with

the fact that loss has been caused for such amount of loss to be

adjusted by encashing of the bank guarantee in terms of Section 74 of

the Act. The respondent No.1 seems to have gone on a tangent in the

arbitration proceedings by contending that as per the judgment of the

Supreme Court encashment of the bank guarantee cannot be prevented

by the Courts, however, this was not an issue because no doubt

encashment of bank guarantee cannot be interdicted by the Court,

FAO No.222/2010                                              Page 3 of 6
 however, entitlement to retain the amount with respect to the bank

guarantee encashed can only be if loss is pleaded and proved in terms

of Section 73 or if loss is otherwise caused and the amount is retained

because of the clause of liquidated damages under Section 74 of the

Act. I have already stated above that the pleadings of the appellant

were also equally vague in the arbitration proceedings because it was

not the case of the appellant that respondent No.1 did not suffer any

loss and therefore was not entitled to forfeit the amount of the bank

guarantee in terms of Section 73 of the Act or because that there was

no clause of liquidated damages entitling forfeiture under Section 74 of

the Act and that no loss had been caused.

6.         In view of the above, it is quite clear that both the parties,

as also the Arbitrator (respondent No.2), have failed to address

themselves to the real issue applicable i.e. as to whether the amount

encashed by the respondent No.1 under the bank guarantee could be

retained by the respondent No.1 either because loss had actually been

caused and which could have been pleaded and proved under Section

73 of the Act or because there was a clause of liquidated damages and

the bank guarantee amount was adjusted against this clause of

liquidated damages under Section 74.

7.         The net effect of the above is that actually there is required

that there should be such necessary pleadings in view of aforesaid

observations by both the parties before it is held as to whether the

retention of the amount by the respondent No.1 is illegal as per the

FAO No.222/2010                                              Page 4 of 6
 case of the appellant or whether the respondent No.1 could retain the

amount of bank guarantee on account of loss which has been pleaded

and proved in terms of Section 73 of the Act or because of loss having

been caused and there is a clause of liquidated damages entitling

retention of the amount of the bank guarantee as per Section 74 of the

Act. It is therefore necessary that the Award so far as this aspect is

concerned be set aside and the matter be referred back to the

Arbitrator for fresh decision in accordance with law. The parties are also

at liberty to file additional pleadings with respect to this aspect before

the Arbitrator and they may also choose to lead such evidence as they

so think fit. This Court has power under the Arbitration & Conciliation

Act, 1996 to remand the case back for a fresh decision in accordance

with law and this has been so held by a Division Bench of this Court in

the case of BSNL Vs. Canara Bank & Anr. 169 (2010) DLT 253.

8.          Since, I am remanding the matter with respect to the issue

of entitlement of the respondent No.1 to retain the bank guarantee

amount I would also remand the matter back to the Arbitrator for

reconsidering the issue of pendente lite interest inasmuch as ordinarily

the pendente lite interest is always granted because otherwise it would

mean that guilty party can retain an amount of another person causing

loss of return/interest to the person who is entitled to the amount. The

principle of Section 34 of Code of Civil Procedure, 1908 (CPC) has been

held applicable to arbitration proceedings so as to entitle the Arbitrator



FAO No.222/2010                                               Page 5 of 6
 to Award pendente lite interest. No legal reasoning has been given by

the Arbitrator to deny the grant of pendente lite interest.

9.          Accordingly, the appeal is disposed of by remanding the

matter back to the Arbitrator for deciding the two issues of the

entitlement of the respondent No.1 to retain the bank guarantee

amount or entitlement of the appellant to refund of the same and also

as to whether the appellant should be granted or denied the pendente

lite interest with respect to the amount of the bank guarantee if

awarded in favour of the appellant in accordance with law.

10.         With the aforesaid observations, the appeal stands disposed

of. The record of arbitration be given in a sealed cover to the counsel

for the respondents for being given to the Arbitrator.   Trial court record

be sent back.




SEPTEMBER 29, 2011                               VALMIKI J. MEHTA, J.

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